Operationalizing Reverse Bayesiansim

29 Pages Posted: 15 Jun 2020

See all articles by Surajeet Chakravarty

Surajeet Chakravarty

University of Exeter Business School

David Kelsey

University of Exeter Business School - Department of Economics

Joshua C. Teitelbaum

Georgetown University Law Center

Date Written: May 19, 2020

Abstract

Karni and Vierø (2013) propose a model of belief revision under growing awareness — reverse Bayesianism — which posits that as a person becomes aware of new acts, consequences, or act-consequence links, she revises her beliefs over an expanded state space in a way that preserves the relative likelihoods of events in the original state space. A key limitation of the model is that reverse Bayesianism alone does not fully determine the revised probability distribution. We provide an assumption — act independence — that imposes additional restrictions on reverse Bayesian belief revision. We show that under act independence, knowledge of the probabilities of new events in the expanded state space is sufficient to fully determine the revised probability distribution in each case of growing awareness. We thereby operationalize the reverse Bayesian model for applications. To illustrate how act independence operationalizes reverse Bayesianism, we consider the law and economics problem of optimal safety regulation.

Keywords: act independence, reverse Bayesianism, safety regulation, unawareness

JEL Classification: D83, K23

Suggested Citation

Chakravarty, Surajeet and Kelsey, David and Teitelbaum, Joshua C., Operationalizing Reverse Bayesiansim (May 19, 2020). Available at SSRN: https://ssrn.com/abstract=3605584 or http://dx.doi.org/10.2139/ssrn.3605584

Surajeet Chakravarty

University of Exeter Business School ( email )

Xfi Building, Rennes Dr.
Exeter, EX4 4JH
United Kingdom

David Kelsey

University of Exeter Business School - Department of Economics ( email )

Streatham Court
Exeter, Devon EX4 4PU
United Kingdom
013 9226 2536 (Phone)

HOME PAGE: http://people.exeter.ac.uk/dk210/

Joshua C. Teitelbaum (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue NW
Washington, DC 20001
United States
202-661-6589 (Phone)

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